After plenty of discussion papers, debate around the topic has been relatively quiet in the past year – that was until September’s International Accounting Standards Board (IASB) meeting.

The first topic up for discussion focused on pre-payment risk. Until now it was assumed that the calculation of the financial assets contribution ratio was effectively the financial contract from start to finish, without taking into account the prepayment risk. The reality, however, is that prepayment behavior is modelled within risk management and that has a significant impact on the proposed dynamic risk management proposal for hedging.